CHENNAI/Mumbai: The next big M&A deal in Indian IT industry is underway with the $400-million Polaris Financial Technology appointing a four-member task force to explore all "strategic options" to unlock shareholder value. The Chennai-based company, which counts Citigroup as its biggest client, could sell its smaller products business or demerge software services and products into separate entities to unlock value.

A deal making move by Polaris could value the company at more than $600 million, said banking sources tracking the development.

The task force will return to the company's board with recommendations in the next 90 days. The move came after global consultants BCG advised the board that products and services businesses of the company are run on different matrices. "BCG highlighted that investors /analysts and markets are unable to predict Polaris' revenues and profit numbers. They are also unable to forecast as both businesses have different models," Polaris founder chairman Arun Jain told TOI.

On Tuesday evening, he sounded out the same to select analysts on a conference call after the company's third quarter results. Polaris revenue stood at $107 million, with operating profit of Rs 94 crore and net profit at Rs 41 crore. Polaris Sourcing (or services business) accounted for 78% of the revenue, while Polaris Intellect (or products business) accounted for the rest in the quarter ended December . Polaris stock, which had soared in recent days, crashed more than 9% on Tuesday. But the management talk about value unlocking moves came after market hours. Polaris tracking more than $400 million revenue this fiscal, ended the day on bourses with market capitalization just below $240 million.

"The markets have not understood Polaris. Our stock is trading at a PE of just 5 or 6 when the industry PE is 11 or 12. For instance, our services business operates at 42% which is probably the best in the industry. Yet we do not get that valuation . The board has created a task force to come out with recommendations which will aim to unlock valuations," he said. "Once we receive the recommendation, we will seek external consultants' views and take a call on what is best for the company ," he added, while talking to TOI.

Investment bankers said Polaris, which has nearly Rs 500 crore surplus cash, could fetch threefold valuation on its current market value. "This is not a generic IT services play. They have built a core banking solution, like Infosys and Tata Consultancy Services, and have big global clients," said a banker who did not wish to be named. Any deal will have to be backed by a long term master service agreement from Citigroup, which accounts for nearly $200 million revenue, he added. The American banking giant also holds a nearly fifth — 19 .68% to be precise — in equity in Polaris.

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Polaris may sell its smaller products biz, or demerge software services into separate entities A deal could value the Chennai based IT co that's into financial services at over $600m, say bankers The four-member task force will get back to the co's board with suggestions in 90 days

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The next big M&A deal in Indian IT industry is underway with the $400-million Polaris Financial Technology appointing a four-member task force to explore all “strategic options” to unlock shareholder value.